US Woman Takes on Banks Over Libor

A pensioner whose home was repossessed is taking on some of the world's leading banks in the first known class-action lawsuit claiming that alleged Libor manipulation made mortgage repayments for thousands of Americans more expensive than they should have been.

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The subprime mortgages of Annie Bell Adams and her four co-lead plaintiffs were securitised into Libor-based collateralised debt obligations and sold by banks to investors.

The class action, filed in New York, alleges that traders at 12 of the biggest banks in Europe and North America – including Barclays, Bank of America and UBS – were incentivised to manipulate the London interbank offered rate to a higher rate on certain dates on which adjustable mortgage interest rates were reset. This resulted in homeowners paying more between 2000 and 2009, according to the complaint.

The plaintiffs, who could number 100,000, have lost thousands of dollars each, says their Alabama-based attorney, John Sharbrough. He declined to give a figure on the total damages his clients are seeking.

A series of class actions have been filed in New York since banks disclosed they were being probed. Until now plaintiffs have been investors and municipalities, not homeowners. The banks are contesting the lawsuits and declined to comment. A New York judge will have to decide whether to allow any or all of these suits to go ahead as group actions.

The plaintiffs held so-called Libor Plus adjustable-rate mortgages. There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, with an unpaid principal balance of $275 billion, according to the Office of the Comptroller of the Currency, a bank regulator.

Increasing Libor allowed banks "to raise the interest rates paid by the plaintiffs on their adjustable-rate notes", the complaint reads. Most adjustable-rate mortgages had the first day of the month as a "change date" on which new repayment rates would reset, it adds.

Statistical analysis shows Libor rose consistently on the first day of each month between 2000 and 2009, the lawsuit claims. Between 2007 and 2009 Libor moved by as much as 7.5 basis points on certain reset days, it alleges. The plaintiffs' calculation methods were not in the court documents.

Libor, or the London interbank offered rate, is the benchmark for $350 trillion in contracts worldwide. What was an esoteric borrowing rate moved into politicians' and the public's consciousness after Barclays paid 290 million pounds in penalties in June to settle allegations it had sought to manipulate the rate to make money on derivatives. About a dozen other financial institutions on three continents are also under investigation and more enforcement actions are expected, including at least one more by the end of 2012.

Traders' emails were published as part of the Barclays settlement. One, referenced in the Alabama complaint, shows a trader asking for a higher Libor rate because "We're getting killed on our [three-month] resets."

Barclays declined to comment.

"This can't just be dismissed as a kooky lawsuit," said Dominic Auld, a litigator at Labaton Sucharow, who is not involved in the suit. "Referencing CDOs and subprime mortgages ... really ties together Libor manipulation with the kinds of behaviour that caused the financial crisis in first place."

Lawsuits claiming damages from alleged Libor manipulation have been grouped together under one judge in the Southern District of New York. The cases have been stayed until a hearing of a motion to dismiss the claims, which has been brought by the banks. That is not expected until the end of 2012 at the earliest.